Why Are So Few Black People Using Bitcoin?

The digital currency—popular among a mostly white, mostly libertarian contingent—might prove useful in communities where it's relatively difficult to secure a loan or transfer money.

Edwardo Jackson will gladly drop a Bitcoin primer on anyone who's curious. Beyond his outer enthusiasm for the digital currency—when he talks about Bitcoin, he speeds up as if discussing a newly-discovered oil reserve in his backyard—he loves trading it and tracking its movement in the markets.

In 2013, Jackson, a 39-year-old Las Vegas-based pro poker player and former writer for Upworthy, started spreading the gospel of the currency via his blog, Blacks in Bitcoin, where he claimed that he would “spontaneously combust” if he had no other outlet to voice his obsession with the digital barter.

“Can you imagine what it would have been like to own a piece of email technology in 1994?” asks Jackson, who believes the currency is still very much in its early adoption phase. “That’s what Bitcoin is like right now, and it’s only getting bigger.” While it's still being debated whether Bitcoin will ever gain a full foothold in the global financial ecosystem, there has been less discussion about the currency’s potential effects within communities that aren’t well served by traditional financial services. Bitcoin’s promise in the African American community has been especially overlooked—more time has been spent worrying that the currency would facilitate criminal activity.

Jackson doesn’t neatly fit the image many have of the typical Bitcoin user—the affluent, white, libertarian-leaning male. Jackson isn’t white, and he’s neither an Austrian School devotee nor a card-carrying member of the Seasteading Institute. (“I’m not what you would call an anarcho-capitalist,” he says. “I do believe that government can provide basic rules so that everybody can get along.”) As overall awareness of Bitcoin has grown, African Americans like Jackson might be able to serve as the currency's cultural ambassador to certain minority communities.

From the looks of things, that’s where the currency needs a higher profile. A study conducted in May 2014 by the Conference of State Bank Supervisors and the Massachusetts Division of Banks showed that African Americans are less likely than whites and Hispanics to have heard about virtual currencies in general. Another study, released in July 2014 by the digital media company Morning Consult, found that African Americans are less likely than white and Hispanics to know “a lot” about Bitcoin.

Bitcoin traders might interpret those findings to mean that there isn’t a market for the currency in the black community. Nicholas Colas, the chief market strategist of the brokerage firm ConvergEx Group, doesn’t believe that’s the case. Having written online commentaries and appeared on cable financial-news outlets, Colas is one of Bitcoin's earliest and most vocal evangelists. He believes the currency would be useful to a variety of demographics. “Bitcoin is a Rorschach test for anybody interested in banking, because different people see different things in what Bitcoin can offer different communities,” he says.

With the African American community, Colas sees the currency filling a significant financial-services void. As support, he cites a Senate committee letter written in 2013 by then-Federal Reserve chairman Ben Bernanke, along with a Bitcoin primer published by the Chicago Fed. Neither offered any official endorsement of the currency, but both missives noted the possible benefits of facilitating low-cost transactions in communities where currency exchanges, pre-paid cards and payday loan services are prevalent. “That’s where the promise is for the African American community, because in a finished form, it allows for a cheaper money-transfer system than anything that the current financial system can provide,” Colas says.

According to Shawn Wilkinson, the founder of Storj, a cloud-storage service, Bitcoin could enable people to engage in online microloans. “Bitcoin, or some kind of cryptocurrency, has the ability to decouple African Americans from the economic system in a positive manner,” he says. “With Bitcoin, there are a lot more methods with microlending, where you can have communities using cryptocurrencies to help themselves without any intermediaries."

Wilkinson, who became fascinated by Bitcoin in 2012 while studying computer science at Morehouse College, is more interested in the currency as a way of teaching people about how technology works. Beyond microlending, he sees the real value of Bitcoin for African Americans coming from mining the currency—the process of using software programs to solve complex algorithms verifying Bitcoin transactions, which grants Bitcoin to individuals for their efforts. Mining, Wilkinson believes, will influence more African Americans to become knowledgeable about back-end technology.

“In terms of the Bitcoin ecosystem among African Americans, it really doesn’t offer any benefit over any other demographic,” he notes. That said, he does think it could be quite useful for Africans and Afro-Caribbean natives living in America who want to send money, at a lower cost, to relatives in other countries.

Nicholas Pearce, an assistant professor at Northwestern University’s Kellogg School of Management, does perceive some value in African Americans adoption of Bitcoin, particularly among those who rely significantly on pre-paid cards and currency exchanges to manage their money.

“Bitcoin can be a very useful tool to engage historically under-engaged populations into more digital transacting,” Pearce says. “One thing that is true of any type of innovation of this sort is that there are going to be some people who are early adopters, and Bitcoin is an answer to a problem they have had for years.”

Nonetheless, Pearce stops short of a full-on embrace of the currency, and he's not convinced that anyone besides early adopters will start using it in the black community. “For African Americans in particular, I think the issue with Bitcoin is that it stimulates arms-length transactions,” he says. “In the African American community, by and large, people tend to be more relationship-oriented than transactionally-driven."

Pearce believes there's a distrust in the black community of the financial landscape at large—a distrust that might go back as far as the bank runs from the Depression era. “The fact that many African Americans don’t use PayPal," he says, "or are even afraid to do retail banking, demonstrates this lack of trust in financial institutions, even when there is a face on the other side. Many times, you’ll hear them say, ‘I don’t trust banks, I’d rather put my money under a mattress and risk it being stolen than put it in a bank for some unnamed institution to steal it.’”

Additionally, Bitcoin's volatility might raise red flags in the black community. African Americans are, to be sure, a powerful consumer force—a Nielsen study last year projected that the buying power of the demographic would reach $1.3 trillion by 2017. But black wealth continues to lag considerably behind that of whites, and according to a study released last year by the Center for Global Policy Solutions and Duke University, black households own only five cents of wealth for every dollar owned by whites.

That level of economic disparity means that African Americans accumulate less less in savings and stock holdings compared to other groups—which doesn’t make the strongest case for owning an asset as volatile as Bitcoin. And this is to say nothing of the security worries surrounding the currency, which were proved at least somewhat valid after Mt. Gox, the leading Bitcoin exchange, was hacked in 2013, costing investors hundreds of millions of dollars. For most African American investors, these effects can be disproportionately devastating.

Even a financial analyst as bullish on Bitcoin as Colas acknowledges these concerns should not be taken lightly. “Typically, lower-income households should primarily focus on trying, as best they can, to build up a small savings buffer,” he says. “That isn’t necessarily well-served by having it in Bitcoin because of the volatility of the currency.”

Colas does believe those concerns will be assuaged over time, as mining activity picks up and more Bitcoin is released into the virtual monetary supply—Bitcoin mining isn’t estimated to end until 2140—potentially bringing more stability to the currency’s price and drawing in more users. This could also lead more businesses to accept Bitcoin as well. With these developments, perhaps Bitcoin could exist alongside the historically “relationship-oriented” transactions that Pearce describes.

Still, if those issues get ironed out, there is still the question of whether Bitcoin is conducive to criminal activity. It’s not an issue that applies only to African Americans; the biggest investigation of illegality funded by Bitcoin is currently underway in Australia.

But in economically-distressed black communities especially vulnerable to the ravages of drugs and violence, the prevalence of Bitcoin could be particularly unnerving. In addition to his academic post, Pearce is an assistant pastor of the Apostolic Church of God in the Woodlawn neighborhood on Chicago’s South Side. For years, parts of Woodlawn have witnessed rampant drug use, violence and gang activity (the well-known Blackstone Rangers gang was established there). As a notable figure in the neighborhood, Pearce can empathize with residents looking at Bitcoin with a wary eye.

"There's no question that Bitcoin has the capacity to accelerate other activities in the community that are destructive, because of its arms-length nature," he says. "I think for many people in the black community who have heard of Bitcoin and have associated it with the an illicit marketplace, they will keep away from it so as not to introduce it into a community that has enough issues with alternative economies."

Ultimately, Pearce doesn't foresee Bitcoin exacerbating black communities' socioeconomic ills any more than he foresees it promoting African-American financial empowerment. "Bitcoin is not going to be the cause of illegal activity," he says. "People are the issue."

Colas, for his part, thinks the concern of criminal activity can be dealt with as the currency moves into the regulatory sphere of the financial system, both at the state and federal level. The New York State Department of Finance, for example, has been one the more prominent regulatory bodies, attempting in the past year to establish regulations. “As Bitcoin gets cleaned up, as regulators put rules around it, that will get resolved,” Colas says.

Given that there are demonstrable upsides to using Bitcoin, how might more African Americans come around to using the currency in their everyday lives? Kinnis Gosha, an assistant computer-science professor at Morehouse College, says that African American merchants could play a large role, since they are ever-mindful of transaction costs. "If you're a small business owner, and you say, 'We're not doing PayPal, we're only doing Bitcoin,' and it is actually in places where African Americans shop, it's going to be hard to get African Americans to refuse it.”

But on top of all those issues—wealth disparities, Bitcoin's volatility, facilitation of crimes—even a Bitcoin aficionado like Jackson believes there is another obstacle that needs to be surmounted before the currency becomes more widely adopted by African Americans: the obstacle of racial perception itself.

"I think what has hindered Bitcoin in some respects is that its early adopters have been largely counterculture, libertarian white males," he says. "There's nothing wrong with those early adopters at all, and they don't exclude anyone. It's just that they tend to sit in their own coffee klatch of like-minded demographic folks, and some of them may eventually say, 'Oh, we haven't reached out to minority communities, to women, and to certain parts of the globe to bring them into Bitcoin.'"

It’s why Jackson is so passionate about getting African Americans onboard with Bitcoin, even with all the issues that need to be worked out. "Just like with poker, Bitcoin right now is a very egalitarian game," he says. "There are so many avenues that are set up where you can buy Bitcoin, there are no real institutional blockages between you getting Bitcoin, and it's still relatively early and cheap enough."

One survey—the one that found that blacks are less aware of virtual currencies than whites and Hispanics—also found that 24 percent of African American respondents said they were “at least somewhat likely” to purchase Bitcoin, a percentage lower than among Hispanics but higher than among whites. It might take a while to develop, but there are signs that Jackson’s vision isn’t hopeless.